Child discount: How to apply it correctly and how much money will you get thanks to it?

What is the Child Tax Credit and who is entitled to it?

Child Tax Credit is a tax benefit that you, as a parent, can claim for each of your dependent children living in the same household as you. Not only parents, but also adoptive parents, foster carers or people who have custody of a child by a court order. In legal terms, the Income Tax Act regulates the child allowance.

Only one spouse can always claim the rebate for a particular child. However, in the case of families with several members, it is possible for each parent to claim the discount for one of the children if they do not want only one of them to claim the discount for all of them.

Under what conditions can you claim the discount?

• The age of the child is important: you can apply the discount to children up to 18 years of age. But be warned, if your child decides to go to university or take advantage of another type of education, in short, the child continues to study, your entitlement to child tax credit is extended until the child is 26.
• The child must have dependent status: a dependent child is a child who is in education, has no income of his/her own or is unable to support him/herself. This may be due to a disability, for example. In other words, once your child loses his or her student status and starts earning an income (earnings while studying may not play a role in this case), your entitlement to claim child benefit ends.
• Permanent residence also plays a role: To claim the child tax credit, your child must be a permanent resident of the Czech Republic or another EU/EEA country.

You also need to clarify who all falls under the category of “child” in this case. These are:

• your own child,
• an adopted child,
• a child in care replacing the care of the parents,
• a child who has acquired full legal capacity or has reached the age of majority in foster care,
• a child of the other spouse,
• his/her own grandchild/grandchild or the grandchild/grandchild of the other spouse, if his/her parents do not have sufficient income to qualify for the child allowance.

Conversely, you cannot claim the child credit for the offspring of your spouse, even if he/she lives in the same household as you. Once you are not married, you are not entitled to this benefit.

How much money can I get from the child discount?

The amount of Child Tax Credit varies depending on how many children you claim it for. From 2022, the amounts have increased. This reflects the government’s efforts to support large families.

The current amounts are:

• For the first child: CZK 15,204 per year (CZK 1,267 per month).
• For the second child: 22 320 CZK per year (1 860 CZK per month).
• For the third and each additional child: CZK 27 840 per year (CZK 2 320 per month).

The law does not specify the order in which you must list your children, meaning that the oldest child does not necessarily have to be first. If one of the children has a PWD/P card, you can list him/her third to reach the maximum amount.

Wondering how this works in practice if you have more than one child? If you have three children, you can deduct a total of CZK 65,364 for the year. This amount is deducted directly from your income tax. If the deduction exceeds your tax liability, you will receive the difference as a so-called child tax bonus. So a family with three children where the couple’s annual tax liability is CZK 50,000. After the tax credit is applied, they will get CZK 15,364 in bonus because the total credit (CZK 65,364) exceeds their tax liability.

How do I claim the Child Tax Credit?

Employees can claim child tax credit through their employer. All they need to do is provide the child’s birth certificate, proof of education (if the child is over 18) and other necessary documents, such as proof that the other parent does not claim the allowance.

Entrepreneurs and self-employed persons (self-employed) can claim the child tax credit when filing their tax return. The amount of their deduction depends on their taxable income and any entitlement to the child tax credit.

Some employers may ask for confirmation that the child tax credit has not been claimed. They want this certificate mainly to avoid a situation where both parents claim the child credit at the same time. So if the other parent does not claim the allowance, they must provide written confirmation that they do not do so when asked by the other parent’s employer.

When is an affidavit required?

If the parents take it in turns to care for the child (for example, alternate care), they must provide an affidavit as a document that clearly identifies which parent will claim the tax credit and for which period. This affidavit must include:

• The child’s name and date of birth.
• A statement that the other parent does not claim tax relief for the child.
• The date and signature.

What is the child tax credit?

The Child Tax Credit is direct financial help that parents receive if the Child Tax Credit exceeds their tax liability.

Eligibility:

• A minimum monthly income of at least half the minimum wage, for self-employed workers the minimum annual income is six times the minimum wage.
• Meeting the conditions for claiming the child allowance.

The tax bonus is not available to the long-term unemployed, persons in receipt of a retirement pension, persons whose income is derived only from rent or capital assets.

What does this look like in practice?

For divorced parents, only the parent who has sole custody of the child claims. In the case of alternate care, one parent can claim the first half of the year and the other half of the year. Model example: the Procházkas are divorced and have alternate care of their daughter. They have agreed that the father will claim the discount for the first half of the year and the mother for the second half. Each of them must sign a “child discount affidavit” to comply with the law.

Mrs Little has three children, one of whom is disabled. As the discount for children with a PWD/P card is doubled, Mrs. Malá can claim the higher child tax credit.

When claiming the child tax credit, it is often a common mistake for both parents to claim the benefit. This can lead to them having to make up the difference in tax and even risk penalties. Complications can also arise if you do not submit an affidavit of non-application of the child tax credit or any other necessary document on time.

Once the month comes when the child stops or starts qualifying for your child tax credit, you can still claim the child tax credit. This is because the law says that it can be claimed for any calendar month in which the child qualified for at least part of the month. So if your child is born at the end of the month, you can still claim the allowance for that month.

Summary

The Child Tax Credit is a significant tax credit that can save you up to CZK 15,204 per year for one child, CZK 22,320 for a second child and CZK 27,840 for a third and subsequent child. If the allowance exceeds your tax liability, you are entitled to a tax bonus. Parents, adoptive parents, foster parents or carers whose child lives in the same household and meets the conditions of dependency are eligible. It is important to provide proof of education, a birth certificate or an affidavit if the other parent does not claim the discount. Avoid common mistakes, such as duplicate claims, and save your budget up to tens of thousands of crowns a year.